‘Downton Abbey’ Lesson: Diversify

There are many lessons in family finance imparted by the smash-hit television show “Downton Abbey” and chronicled in the most recent Weekend Investor.

But the most obvious lesson that individual investors can learn from the series, on PBS’s Masterpiece, is to diversify their investments.

On the show, the Crawley family’s financial problems in the most recent season were triggered by its betting its fortune on a railway that wound up in bankruptcy. But even for the bulk of today’s investors, whose assets mainly reside in retirement accounts, concentrating too much in one investment is a risk.

You could wind up with too many investments in a single industry by investing in different funds that buy similar stock holdings. Or, your plan may invest a sizable portion of your contributions, or the employer match, in company stock. If you don’t regularly reallocate those holdings and the company’s fortunes go south, so could your savings.

Financial adviser Ric Edelman says that many clients come to him with 10 to 15 mutual funds—but most of them invest in the same type of securities, such as municipal bonds. That means they actually could have 10 to 15 of the same type of investment.

The fix: Take a good look under the hood of the funds in your retirement accounts at least once a year to make sure your holdings actually are diversified. Edelman, for example, recommends investing in both U.S. and international stock funds, including large-cap, midcap and small-cap value and growth, as well as government and corporate bonds with varying terms. He also suggests hedging those positions with investments such as real estate, natural resources or cash, depending on your risk tolerance.